Welcome to... FHA Quality Assurance Update: Q1 2021 - HUD

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               FHA Quality Assurance Update: Q1 2021
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Helpful Links

Click on the Chat icon or Landing Page and select links to bookmark:

• FHA Lenders page:
  https://www.hud.gov/program_offices/housing/sfh/lender

• FHA FAQ page:
  https://www.hud.gov/FHAFAQ

• Single Family Housing Archived (On Demand) Webinars page:
  https://www.hud.gov/program_offices/housing/sfh/events/sfh_webinars

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Office of Lender Activities and Program Compliance
                    FHA Quality Assurance Update: Q1 2021
                                                    March 23, 2021

           Presented by:
           Jack Higgins                        Derek Taylor                 Christina Channing
           Director                            Management Analyst           Single Family Housing Specialist
           Quality Assurance Division          Quality Assurance Division   Quality Assurance Division

Last Updated: 03/17/2021

Learning Agenda

Loan Review Results

Quality Control Waiver Updates

Servicing Quality Control – CARES Act

Resources

Q&A

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Loan Review Results

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Quarterly Volume

              Review Type                                           # Completed   % Net Material
                         Underwriting                                     6,487            13%
                         Servicing                                         368               3%
                                 Early Payment Defaults                   2,791              5%

              SELECTION REASON
                                 Lender Self-Reports                      1,442            32%
                                 Risk Algorithm                           1,353              9%
                                 Lender Monitoring                         517               8%
                                 Review Location Quality Control (QC)      255               5%
                                 Random Selections                         212               4%
                                 FHA Manual Selections                     136             45%
                                 Test Cases                                122               3%
                                 Early Claims                               27             15%
              Quarterly Total                                             6,855            12%

              Loan Review System (LRS) reviews completed from 10/1/2020 to 12/31/2020

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Quarterly Ratings and Outcomes

         Initial Ratings (Gross)                                              Final Ratings (Net)
                                                                                 Remediated Indemnified
                                                                                   0.5%        5.9%
                                                                                                              Unacceptable
                                                                                                                 0.8%

                                                                                                     Conforming
    Conforming                                                                                         20.4%
                                Unacceptable
      20.4%                        64.6%                                Mitigated
                                                                         57.4%
                                                                                                        Deficient
           Deficient                                                                                     15.0%
            15.0%

             LRS reviews completed from 10/1/2020 to 12/31/2020 (excluding lender self-reports and internal QC)

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Quarterly Loan Review Summary
       Quarterly Loan Review Summary
       Completed Quarter(s): 2020 Q4, 2020 Q3, 2020 Q2, 2020 Q1
       Location(s): All
       Sample: Total
       Material Defects

       Review Ratings #                                  Review Ratings %

           Gross Ratings                                  Net Ratings

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Quality Control Waiver Updates

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Quality Control Waiver Updates

COVID-19 Temporary Partial Waivers of Quality Control (QC) Requirements

• Expired Waiver of QC Review of Early Payment Defaults (EPDs)

   – FHA requirements for QC selection and review of all EPDs are in full force as of September 2020.

   – Previous waiver of the Single Family Housing Policy Handbook 4000.1 (Handbook 4000.1) Sections
      V.A.3.a.i(C) and V.A.3.a.iv(B)(2) for applicable loans.
        QC review not required for EPDs that would have been selected as part of May, June, or July 2020 selections.
        Extended for EPDs that would have been selected in August 2020, provided the loan was reported to FHA with
          Single Family Default Monitoring System (SFDMS) Delinquency and Default Reason Code 055 – Related to
          National Emergency Declaration.

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Quality Control Waiver Updates (cont.)

COVID-19 Temporary Partial Waivers of Quality Control (QC) Requirements

• Alternatives to Field Reviews of Appraisals

    – Waiver of Handbook 4000.1 Section V.A.3.c.ii(C)(1)(b) provides flexibility to use third-party valuation
      tools as an alternative to field reviews.

    – Effective December 4, 2020 for QC reviews in process and for new selections until further notice.
         Applicable for all post-closing QC selection types, including EPDs.
         Related to June 18, 2020 waiver for loans selected for QC review as part of May, June, or July 2020 selections.

    – All other QC requirements for appraisals in Handbook 4000.1 Section V.A.3.c.ii(C) remain in force.

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Servicing Quality Control

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Servicing Quality Control

General Quality Control (QC) Requirements
• QC Program Standards (Handbook 4000.1 V.A.1.c)
   – Each Mortgagee must maintain and update its QC program to ensure it fully complies with all
      applicable FHA requirements at all times.

• Personnel Training and Access to FHA Guidance (Handbook 4000.1 V.A.2.b.i)
   – All FHA Loan Administration and QC staff must have access to current FHA guidance and be
      adequately trained.

• Loan Level QC Review Types (Handbook 4000.1 V.A.3)
   – Must include loans originated, underwritten and/or serviced by the Mortgagee and its Affiliates.

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Servicing Quality Control (cont.)

Loan Level QC Requirements for Servicing
• Frequency and Sampling (Handbook 4000.1 V.A.3.a.i(D))
   – Mortgagees must select loans for servicing QC on a monthly basis.
   – Must be reviewed within 60 calendar days from the end of the month in which they were selected.
   – Sample size depends on the volume of loans in the Mortgagee’s servicing portfolio.

• Review Scope (Handbook 4000.1 V.A.3.e)
   – Mortgagees must review all aspects of their servicing operations to ensure that all FHA servicing
      and loss mitigation requirements are being met.

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Servicing Quality Control (cont.)

Compliance with COVID-19 Policy
• Servicing QC must cover specific requirements related to the COVID-19 National Emergency
  (Handbook 4000.1 III.A.3.d), including:
   – Loss Mitigation for Borrowers Affected by COVID-19
   – COVID-19 Forbearance
   – COVID-19 Home Retention/Disposition Options
   – SFDMS Reporting Requirements

• Must review for compliance with foreclosure moratoriums, extensions and other policy
  updates from all applicable Mortgagee Letters.

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Servicing Quality Control (cont.)

Servicer Monitoring by FHA
• Monitoring reviews are directed to the current servicer of record in FHA systems.
    – FHA defines Servicer as the Entity responsible for performing servicing actions on FHA-insured
      Mortgages on its behalf or on behalf of or at the direction of another FHA-approved Mortgagee.
      (Handbook 4000.1 III.A.1.a.i)
    – Servicers are responsible for their actions in servicing FHA-insured Mortgages, including actions
      taken on behalf or at the direction of the Holder. (III.A.1.b)

• Quality Assurance Divisions will continue to review servicers for compliance with all
   applicable requirements, including COVID-19 servicing policy.

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Resources

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Resources

LRS Information Page
https://www.hud.gov/program_offices/housing/sfh/lender/loan_review_system

• LRS User Manual
• FHA Defect Taxonomy
• Webinars

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Resources (cont.)

FHA Resource Center
•   When inquiring about a specific LRS review, lenders must provide FHA Case Number and review location.
     ― Review location is shown on the LRS Search screen, the Binder Request screen, or the Review Data tab.

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Resources (cont.)

     Option                       Point of Contact                                  Hours Available                        Comments

                                                                                                                           Knowledge Base web page
     FHA Knowledge
                                          www.hud.gov/answers                                   24/7/365                   includes option to email
 1   Base – FAQs
                                                                                                                           questions.

 2   Email                                   answers@hud.gov                                    24/7/365

                                             1-800-CALL-FHA
 3                                           (1-800-225-5342)                                                              Voicemail is available after
                                                                                        8:00 AM to 8:00 PM
     Telephone                     Persons with hearing or speech impairments
                                                                                              Eastern                      hours or during extended wait
                                   may reach this number by calling the Federal
                                                                                               M-F                         periods.
                                        Relay Service at 1-800-877-8339.

     FHA INFO emails: Frequent email notifications of new policies and training opportunities for anyone who signs up. Subscribe at:
     https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/FHA_INFO_subscribe

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Helpful Links

• FHA Single Family Information Page
  https://www.hud.gov/program_offices/housing/sfh
• FHA Catalyst: Case Binder Module
  https://www.hud.gov/program_offices/housing/FHACatalyst/casebinder
• Single Family Housing Policy Handbook 4000.1
  https://www.hud.gov/program_offices/housing/sfh/handbook_4000-1
  Upcoming Events and Training
  https://www.hud.gov/program_offices/housing/sfh/events
• Subscribe to FHA INFO Notices
  https://www.hud.gov/program_offices/housing/sfh/FHA_INFO_subscribe

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Q&A

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Thank you for joining us today!

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